Off Limits for Bond Indexers

By BRENDAN CONWAY

Flows in and out of bond-index ETFs can distort prices as the underlying bonds swing higher and lower. ETFs like AdvisorShares Peritus High Yield avoid the "ETF bid" by buying bonds outside the indexes' purviews.

. . . The rise of index investing is also creating opportunities in active management. The managers of the AdvisorShares Peritus High Yield ETF (HYLD), the only actively managed junk-bond ETF, have beaten both the iShares fund and the SPDR Barclays Capital High Yield Bond ETF (JNK) by about two full percentage points this year; they've returned 12.5%, 10.4%, and 10.6%, respectively. Manager Tim Gramatovitch stresses the hunt for value in bonds that index trackers are prohibited from owning. The SPDR fund can buy only a little more than a quarter of the available bond universe because it's barred from owning bonds from tranches below $600 million, he notes.

Gramatovitch recently warned clients that the passive funds "have no ability to deal with risks in the current credit market," on account of what he views as likely defaults, restructurings, or losses on called bonds. If the active strategy's outperformance in a "risk on" market seems surprising, it's at least partly explained by HYLD's superior 8.3% 12-month yield. If it keeps up, you'll know that the hunt for value outside indexes is real. The active strategy isn't without its trade-offs: The fund charges a mutual-fund-like 1.36% expense ratio.

Time for Germany to ditch euro zone?

MARTIN MITTELSTAEDT

The Globe and Mail

Analysts at TrimTabs Investment Research contend there are no workable solutions to the euro zone’s debt crisis, so it would be in Germany’s economic self interest to abandon the currency, and to do so as quickly as possible.

Much like a sinking ship, the euro is going down, TrimTabs contends. The strongest swimmers should jump off to save themselves, rather than weakening themselves by trying to bail water to delay the inevitable. (Click here for entire story...)

"Mr. DelVecchio, a square-jawed soccer fan who works out of Dallas, isn't a big-name hedge-fund manager with ultrarich clients. He manages a $280 million exchange-traded fund that can be bought and sold by investors of all stripes.

His AdvisorShares Active Bear ETF also differs from other ETFs in the market. Mr. DelVecchio, 36 years old, and his partner, Brad Lamensdorf, actively manage their positions, and they only make negative bets on stocks and bonds. Their strategy is so uncommon that fund-research group Morningstar Inc. believes Mr. DelVecchio's fund is the world's lone actively managed "short-only" ETF."

The Globe and Mail profiles TrimTabs Investment Research Director of Macroeconomics Madeline Schnapp’s original research on US job growth in story, Markets Eagerly Await Job Creation.

"...(O)ne forecasting firm is sticking its neck out and claiming the consensus is way too optimistic. TrimTabs Investment Research projects that the economy added only 124,000 jobs in May, up slightly from the 116,000 created in April. TrimTabs isn't making a wild guess at the number. The research service bases its estimate on an analysis of the daily income tax deposits made to the U.S. Treasury from all salaried U.S. employees, figures that it says are historically more accurate than the initial job estimates made by the Bureau of Labour Statistics.

“Wall Street cheerleaders are ignoring the fact that high unemployment, a depressed housing market, deleveraging consumers, elevated fuel prices, and fallout from the worsening sovereign debt crisis in Europe are keeping the economy mired in slow-growth mode,” said Madeline Schnapp, director of macroeconomic research at TrimTabs, in a commentary accompanying the firm's estimate." Click here for full story